Ark Restaurants Corp (ARKR) 2021 Q1 法說會逐字稿

Greetings and welcome to Ark Restaurants' First Quarter 2021 Results Conference Call. (Operator Instructions).

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sonal Shah, General Counsel. Thank you. You may begin.

Thank you, operator. Good morning, and thank you for joining us on our Conference Call for the First Fiscal Quarter ended January 2, 2021.

My name is Sonal Shah, and I'm General Counsel of Ark Restaurants.

With me on the call today is Michael Weinstein, our Chairman and CEO; Vinny Pascal, our Chief Operating Officer; and Anthony Sirica, our Chief Financial Officer.

For those of you who have not yet obtained a copy of our press release, it was issued over the newswires yesterday and is available on our website.

To review the full text of that press release, along with the associated financial tables, please go to our homepage at www.arkrestaurants.com.

Before we begin, however, I'd like to read the safe harbor statement. I need to remind everyone that part of our discussion this morning will include forward-looking statements, and that these statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them.

We refer everyone to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that might have a direct bearing on our operating results, performance and financial condition. I'll now turn the call over to Michael.

Hi, everybody. Thank you for joining us. I think the first thing we should do is turn to Anthony and ask him to just give you an overview of our balance sheet and when we expect to turn cash flow positive based upon projections.

So Anthony, why don't you please do that for everybody?

Sure. Thanks, Michael. Good morning, everyone. We feel good about where we ended the quarter with our balance sheet. We're cautiously optimistic going forward of how things are going to play out at the end of the quarter. We had $10.8 million of cash, that was down approximately $6 million from year-end, that was primarily the result of our negative EBITDA.

The cash portion of the Blue Moon acquisition of $1.9 million and our debt service of approximately $1 million.

We expect to end the quarter -- the current quarter with approximately $8 million to $8.5 million of cash, based on the current projections. And we believe we'll turn cash flow positive sometime early to mid third quarter. Obviously, this is all dependent on the increases in the capacity restrictions in Washington, D.C., in New York and in Vegas as well as the weather, which is usually -- plays a role in our results, in the Northeast, in particular. And obviously, the efficacy of the vaccine effort that's taking place across the country.

Some of the other items of note. We completed the acquisition of Blue Moon Fish Company, as I stated before, on December 1, for approximately $2.8 million. It was $1.8 million in cash and $1 million note to the seller, payable over 4 years.

In late December, there was a favorable IR -- I'm sorry, Congress passed an action that overrode the IRS' position about the deductibility of the PPP loan expenses. So which -- they are going to be fully deductible and the forgiveness does not have to be recognized as income. So pursuant to that, we immediately prepared our tax returns for the year ended 2020 and filed carryback claims in the amount of $2.2 million. Once those are received, there'll be additional carryback claims of $1.4 million, as a result of the deductibility of those expenses and changes in the tax law relating to carrying losses, back, 5 years instead of 3 years, 2 years when the rates were much higher. So that is recorded on our balance sheet as a receivable.

In addition, we closed Gallagher's in Atlantic City at the end of the year. Our lease was up, we were on a month-to-month there. I'm sure Michael will speak about that, and Thunder Grill and DC is not going to reopen in its current form.

Our PPP loans are the same as they were. We're not eligible for any second draw loans because we're a public company, they were excluded. We've applied for approximately $4.1 million of forgiveness to date. Those have been sent to the SBA, we're waiting to hear back. We expect to apply for the balance of the forgiveness between now and, I would say, mid-May at approximately $7 million to $9 million of additional forgiveness. The difference between the loans and the amount being forgiven, as the result of our inability to actually spend the money in the required period because our restaurants were closed or operating at a very limited capacities.

We have a great relationship with our bank. I think you saw in the release, we extended the maturity date of our revolver. At which point, we will enter discussions with them about terming it out over an extended period. And our corporate office, we continue to work -- reduce salaries of -- 65%, except that our CEO, who is at 50%. Those are the highlights. Back to you, Michael.

Thanks, Anthony, I think that's pretty good. I'm sure you'll have some questions after I'm done. So what is interesting is the flow of what's happened to our revenues in the different venues in which we operate.

Florida continues to be very strong for us. And what I mean is that we're cash flow positive in Florida in all our locations at the moment. We have, with the exception of JB's being cash flow positive since the beginning of when we reopened those properties, which were, I think, roughly around May of last year.

JB's is now profitable. One of the things that hampers this a little bit is we operate legally. So what we face within some of our properties in Florida, we're not operating our bars. People are not allowed to gather at our bars by virtue of Broward County and Palm Beach County regulations, but independents away from us are operating their bars and taking the fines. So to a certain extent, some of the business that we would have had, if we had bars, is flowing to people who are neighboring us, especially the JB's, with their restaurants right next door to us and on the other side of the street. People want us, be at the bar. We're not offering that. But we have had very good results in Tampa at the Hard Rock and Hollywood at the Hard Rock. JB's is now doing well. Shuckers is doing well. Rustic is doing phenomenally well.

A good indication of how valuable these properties are and how strong their individual brands are is on special occasions.

So Valentine's Day, we were just packed in on a waiting list on all our restaurants in Florida. We acquired Blue Moon Fish Company. We thought that could be profitable almost immediately, and it's turned out to be the case. The cash flows out of Blue Moon are very strong. And please recognize Florida right now is in season. So we're gratified with the results, but they sort of were expected.

In Alabama, those restaurants continue to do very well. Alabama during season, throwing off the 2 restaurants, about 90,000 a week. It's now out of season, then marginally profitable, very strong results in relation to what the situation is. We're, again, on reduced seating there. So our capacity is not what it is when we're fully open, but we're very satisfied with the results there.

We were very satisfied with Vegas until they cut back from 50% to 25%, and that flipped us from being cash flow positive to being cash flow negative. They have just reevaluated and increased back, up to 35%. So our guess is that we will be cash flow positive there again or breakeven at least. Our big problems obviously during the winter have been Washington, D.C. and New York. Without any indoor capacity in New York and with only outdoor seating, very dependent upon weather. People do not want to sit outside in the cold. So we've been taking a beating, especially at Bryant Park, where business is maybe 5% of what it used to be 5% to 10% in terms of revenues. So we stay open, we have an obligation under our lease to stay open, but it's been brutal for us there. We're a couple of months away from spring. We were, as of the 12th of February, New York City restaurants were allowed to have 25% socially distant seating in their restaurants, we've done that.

What was gratifying on Valentine's Day and over the weekend, actually, was how much business flowed back to Robert and Bryant Park and our other restaurants. Those restaurants, again, losing cash flow, it's impossible to make money with 25% seating. But we had waitlists for Valentine's day.

So it just sort of encourages us on how strong these brands are and how quick business will flow as capacity increases. So it's sort of back to, in my own mind, to a statement I made after 9/11, we're getting killed, our restaurants were doing a meager amount of business in Washington, New York and Las Vegas because of what happened on 9/11. And I said to people, these are strong restaurants, strong brands, great assets.

As business returns, we will do extremely well, and that happened, and I think it's going to happen again. At least in the Northeast, once we get into spring, whether there's capacity increases for indoor dining or not, we will do well, where we have outdoor seat.

And that's especially true of Sequoia. Sequoia during the summer and early fall, despite capacity limitations indoors because of 600 seats outside did well. We were cash flow positive. So on the whole, I'm very content where we are right now. I don't think we could be doing any better. We're very grateful to everybody who works at this company because they're making do with less income, especially the corporate office. Some of the restaurants, which are not cash flow positive. Everybody's on a reduced income levels as well. Some of our landlords have been very cooperative. But I would think sometime in the June quarter, we turn positive cash flow again.

So with that, if that's a satisfactory explanation, I'd like to talk about, I guess, Anthony mentioned Thunder Grill at Union Station. Our lease was up. Union Station is a problem right now. The landlord and I are very close, they want us to reopen in that spot, perhaps do a different concept.

But right now, it doesn't pay to talk about it. Union station is homeless encampment. And a restaurant would not be -- being open would not do well right there, right now, especially with reduced capacity.

So we'll probably start a negotiation to see if we can come to some lease term in March or April there. We've closed down Atlantic city because the leases were up and we consider Atlantic City marginal at best. We did well. But with new leases, we don't think there's any advantage. And the restaurants require a lot of money to be put into them because we sort of forewent maintenance in them.

Meadowlands, we're absolutely convinced, at some point, there'll be a casino there. We think the state's budget and deficits are going to help us, with the state making a decision to move to establish casino properties in the northern part of the state.

We just don't think there's a better site than Meadowlands Racetrack for that. We think that as New York, approves downstate casinos, which we also think is going to happen very soon. They had a lot of flood -- fire under New Jersey to start to move legislation to permit it.

Right now, Meadowlands is cash flow positive because of sports betting, I think, was the largest sports betting venue in the United States right now in terms of revenues. So hopefully, that keeps up, once sports betting comes to New York, which they're talking about, probably that reduces the capacity for us in terms of revenue, but we also think that, that will be another reason for New Jersey to establish casino in the North. So all things considered, we feel pretty comfortable. We like to be cash flow positive now, but it's impossible. But I think that's coming very soon. I'll take questions now.

Michael?

Yes?

Do you want to just discuss JB's transaction and what's going out with that?

Yes. That's a good point. So when we purchased JB's, we had a right of first refusal. If the landlord who owned the parking lot across the street, which JB's uses and has exclusive use of, and the parcel under the restaurant, we had a right of first refusal on the sale. The landlord was originally asking $18 million for those 2 properties. And that wasn't going to happen. And little by little he started to reduce the price. And he found the buyer at $11 million. We exercised our right of first refusal. Because we think they are great development sites, but on an economic basis, our rent is $600,000 a year. So if it was appropriate for Ark to put in $11 million to own those parcels and find a developer to work with us, we would have done so. Honestly, the $600,000 in rent would have been enough to cover interest and some minor amount of principal on an $11 million loan. So it seemed like that would have been our worst option. Most positive option would have been to sit there and own it and find a developer and make a development deal with somebody who knows how to develop. We do not know how.

But we decided that -- we knew some developers and it was inappropriate for us to put up that money. So we arranged with people we're friendly with, who are developers, and have developed 6 hotels in South Beach and in Broward County, to partner with us. And essentially, they put up all the money, and we have a carried interest in the development of when the properties are developed.

It's anticipated right now that JB's will stay in place and the development will go on the parking lot side, which is west of A1A, JB's is on the beach, which is east of A1A, which is the coastal highway.

So we think we would be able to derive some extra cash flow from that development in addition to benefiting from more density, which will help JB's revenue side.

So that's the footnote that's in our QS that just was filed. All right. Again, I hope that explains it. And please ask questions.

(Operator Instructions).

Our first question comes from the line of Steve Olson, a private investor.

Regarding JB's, you financed 100% of the purchase price of the restaurant. And on a short-term basis has some pretty -- and I guess, the plan would be and confirm this, under normal circumstances, you would expect the cash flow from the operation to pay off the debt service over the next 5 years, and I think there's a 6 year of a balloon payment towards the end of the 5 years.

The volume of the unit -- I thought the parking lot was critical to maintain this $10 million plus business volume. How are you thinking about the impact on the unit volume with the potential loss of parking? Or is this a longer-term development? If you could just kind of comment or help me understand that.

Yes. A good question, and I should have addressed it, I apologize. So when we -- you're right. The parking lot is 121 spaces. Spaces in that area are very difficult to come by. Parking is -- without that parking lot, we would suffer on a revenue basis.

But -- so when we bought the restaurant, essentially we created an easement on the parking lot where the -- whoever owned the parking lot, the owner of the restaurant owned the parking lot. They were 2 separate parcels, Parcel A being the land and the JB's, parcel B being the parking lot. The lease gave us an easement on the parking lot with a 25-year term where he had to provide 121 spaces or if a subsequent buyer purchased it, they would have to provide 121 spaces. And if there was a development, they would have to find 121 spaces that were convenient and we were the sole arbitrator of what was convenient. So now we did this deal with a friend and obviously if they develop, those parking spaces are going to disappear for a period of time. And so, there is an equation based upon our EBITDA that the development will have to reimburse us for any lost EBITDA during the time that the parking lot is closed.

There is a minimum that they have to give us under any circumstances regardless of EBITDA. If EBITDA went down to $0 the year before the development started, they still have to pay us a minimum that they have to pay us what the EBITDA is up until -- up to a maximum. So for instance if in the year that they demolish and start to build on the parking lot space if our EBITDA is $1.5 million and that goes down in the year in which they do it, they have to replace the $1.5 million.

So we're protected on that. And then yes, it is a long-term deal, where we own piece of development. There are other opportunities that we think we can add additional revenue by operating some of the functions in the hotel because part of this is going to be 101 room key hotel, we believe. This is early in the game. It will take us 8 months to really figure out what the development consist of. It will consist of the hotel, it will consist of some condominiums, it will consist of some retail space. And we have as of right zoning, we would like to expand on that as of right zoning. We're meeting with the city shortly to show them the plan and see what we can maneuver to get.

So we're 8 months away from probably knowing what we're building. But yes, we are protected with our EBITDA.

Okay. And can you comment on any trends in event bookings at your locations, that typically in normal years host many events.

Any trends -- I'm sorry my dog is barking...

In -- booking of events? Or is it too early? Are you getting more calls about hosting events at any of your locations?

I can take it through the flow of this. One of the things we were concerned about in terms of cash flow or balance sheet is we usually have $4 million or $5 million in deposits for events that are going to take place at Sequoia, Bryant Park or Robert. Those are our 3 big venues for events.

And we were concerned that everybody was going to ask for their deposits back. And we were not playing hardball with anybody. We were saying, look, if you want your deposit back, you can have it back, but we will not guarantee pricing going forward, we don't know how long the pandemic is going to last, and we don't know where pricing will be, a year from now.

So if you want to maintain your deposit, we'll guarantee pricing will stay the same. If you take your deposit back, we're starting all over with it, a price point, when and if you want to do your event. We had very few cancellations. Anthony is -- am I right about $1 million went back?

Yes. Event staff has done an amazing job of pushing a lot of the events at Bryant Park and Sequoia are corporate events. So they were pushed off. Our people worked with the customers to push them off for a year. Weddings were the issue that were scheduled. Those -- a lot of the refunds were related to weddings. And from what I understand now, we are getting a lot of inquiries on weddings and smaller events at both in New York and DC.

Yes. I can address that because -- pretty well because my daughter is one of our event planners. So I hear that every day. How she's doing. And we're booking an awful lot of weddings in Sequoia, which is a big wedding venue. Maybe more than we've ever had. In terms of corporate events in New York, we're getting calls. We have -- we're signing contracts. Everything is constantly being pushed forward. There are events where -- middle of last year, they pushed them to the end of last year, then they push them to the spring and now they're pushing them to the fall.

But our event business when we open and when we're allowed to have events, I think it's going to be robust not because of pent-up demand, I think it's just people do get married, people do have bar mitzvahs, social events will occur regardless. Right now we've made arrangements with other venues. Gotham, for instance, in New York is a place where if you have an event for 200 people, you can do social distancing. We can't do an event for 200 people at Robert and have social distancing. So we're working with a couple of other venues to move events in the event we can't do them because of capacity requirements. Right now, in New York State, we're allowed to do events for 150 people, but it's ridiculous. I don't know anybody who'd want to do an event for 150 people given the requirements that everybody has to have a COVID test within I think 48 hours before the event and there has to be a monitor at the event to make sure that the certificates are presented. And then there's social distancing, we can't have an orchestra because dancing isn't allowed or maybe you can have an orchestra, but you're not allowed to dance. It's ridiculous.

So we're 3, 4, 5 months away, I would take a guess, again, as we get closer to herd immunity or enough people vaccinated, where states feel comfortable hoping and seeing up completely. But we will be busy We will be busy. I hope that answers your question.

Yes. No, good to hear. And the final question, any update on the thoughts on Clyde's, the future of that operation?

So honestly, we have been talking to people. We have a spectacular lease at Clyde's. And we have a really a very cooperative landlord. We're not paying any rent there right now, minimum rent. We pay a percentage of our sales, and sales have been weak. We were closed until recently because we don't do outdoor seating at Clyde's, didn't make sense. And so now we're at 25% capacity. We have an interesting conversation going about reconceptualizing it. I'll have more to say about it in maybe a month.

But right now, it's Clyde's, it's operating as Clyde's. Is the restaurants that should have worked that didn't work. One of the hard things about being in a business where you have a lot of individual brands and they're like art forms, we've been very successful, guessing what the public wants and building something that the public likes over the years.

I just never understood why Clyde's didn't work. I mean there are times we've built restaurants and you do understand why they're not working, and you can correct them and -- or not, but at least you understand why they're not working.

We really never had a strong understanding of why Clyde's didn't work. And we've tried stuff to make it work, but it really needs to be reconceptualized. The lease is a very strong lease, the infrastructure is in great shape. We should be able to do something to piggyback that lease and infrastructure and build something that becomes cash flow positive.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Thanks, everybody, for being on the call, and we'll speak to you at the end of the next quarter. Last quarter, I did this, and I'll do it again. If anybody has any follow-up questions. My cell number is 646-322-9197. I'm generally available for your call. So I'm happy to hear from you. Thanks very much.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

Thanks, everyone.